Saturday, October 22, 2016

Little Stevie Hayward of Powerline Is Still an Economic Jackass

Like the other writers at Powerline, little Stevie Hayward thinks he's economically literate. I'll pause in my writing so you can laugh.

On September 26th, he did a standard cut and paste article, citing the recent string of weak profits as a sign that the economy was in real trouble. In a rebuttal published the next day, I noted that that the answer was actually far more nuanced. As anyone who actually watches the market knows, energy and basic materials sectors are largely responsible for the earnings weakness.

Well, we're now a few weeks into the 3Q16 earnings season. And what's happening? Let's go to the Zack's website:

First, earnings growth for these 81 index members is not only tracking better relative to what these same 81 companies reported in the preceding quarter, but also the 4- and 12-qurater averages. In other words, the earnings growth pace has notably improved relative to the recent past.

Second, the improvement in growth on the revenue side growth is even more notable, with Q3 revenue growth for these 81 index members notably better relative the preceding quarter as well as the 4- and 12-quarter averages.

Third, positive EPS surprises for this group of companies are tracking notably above historical periods. This could be interpreted to mean that estimates may have been too low ahead of the start of this reporting season. But the reality is that Q3 estimates didn’t fall as much as had been the case with other recent quarters.

Fourth, positive revenue surprises are also notably tracking above historical levels. Given the earlier comment about the modest negative revisions to Q3 estimates ahead of the start of this earnings season, it is reasonable to interpret the revenue trends (both growth as well as surprises) as a sign of improvement in the overall earnings picture.

.....

The improvement in Q3 growth following the strong recent results indicated that we could very well end up modestly in positive territory for the quarter. But there is no question about expectations for Q4 and beyond, with positive growth is expected to resume in Q4 and ramp up in the following quarters. Earnings growth is expected to be in double-digits in 2017 and the following year.

We're only about 20% of the way through the season right now, so we shouldn't get too excited. But the trend is clearly improving.

So, will Mr Hayward write a retraction/correction/a "gee I was really wrong" piece? Of course not. I'm sure he thinks he's still economically literate. But at least there's yet another piece that shows how incredibly wrong the Powerline guys are at economics.

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